Fitch Rates CEMEX's Notes 'BB-(EXP)'

(The following statement was released by the rating agency)
CHICAGO, June 08 (Fitch) Fitch Ratings has assigned an expected
rating of
'BB-(EXP)' to CEMEX S.A.B. de C.V.'s (CEMEX) proposed EUR400
million secured
notes issued through its subsidiary CEMEX Finance LLC. Proceeds
from the notes
will be used for general corporate purposes, including liability
management.
The guarantors for the notes will be CEMEX, S.A.B. de C.V.,
CEMEX Mexico, S.A.
de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca
deMexico, S.A. de C.V.,
New Sunward Holding B.V., CEMEX Espana, S.A., Cemex Asia B.V.,
CEMEX Corp.,
Cemex
Egyptian Investments B.V., Cemex Egyptian Investments II B.V.,
CEMEX France
Gestion (S.A.S.), Cemex Research Group AG, Cemex Shipping B.V.,
and CEMEX UK.
The notes will enjoy the same collateral package as the
creditors under CEMEX's
Credit Agreement.
KEY RATING DRIVERS
Leverage to Remain High
Fitch projects CEMEX's net leverage will remain unchanged in
2016 at around 5x,
absent asset sales and new equity from conversion of
convertibles and CEMEX's
planned Philippines public offering. Challenges to organic
deleveraging include
low single digit volume growth in many markets and the weak
performance of
CEMEX's equity preventing the anticipated debt to equity
conversion. Targeted
asset sales of approximately USD1.0 - 1.5 billion over the next
18 to 24 months
coupled with the IPO of its Philippines operations would lower
leverage by
around 0.7x.
Weak Stock Performance
The poor performance of CEMEX's stock price has lowered the
probability that the
company will be convert more than USD1 billion of debt to
equity. CEMEX has
USD690 million of convertible debt due in 2018 and USD521
million due in 2020.
The strike prices for these conversions are USD8.92/ADS for the
2018
convertibles and $11.45/ADS for the 2020 convertibles, which
compares with a
current stock price of USD6.61.
Continued Free Cash Flow Generation:
Fitch expects CEMEX's free cash flow generation growth to remain
above USD600
million in 2016. Keys to positive FCF in 2016 include strong
price increases in
key markets, continued cost reduction measures, reduced working
capital cycle,
lower interest expense, and lower cash taxes. Sluggish volume
growth in Mexico,
Colombia, and Europe will partially offset some of the strong
positive free cash
flow generation.
Strong Business Position:
CEMEX's 'BB-' IDRs continue to reflect its strong and
diversified business
position. The company is one of the largest producers of cement,
ready-mix and
aggregates in the world. Key markets include the U.S., Mexico,
Colombia, Panama,
Spain, Egypt, Germany, France, Poland, the U.K., and the
Philippines. The
company's product and geographic diversification offset some of
the volatility
associated with the cyclical cement industry.
Growth in EBITDA Margins:
CEMEX's EBITDA margins were 18.2% during 1Q16, which was a 120
basis point (bps)
improvement compared to 1Q15. Fitch projects CEMEX's EBITDA
margins will remain
above 18% in 2016 as continued EBITDA growth in the U.S. coupled
with continued
companywide cost reductions will result in sustained
profitability for the year.
Improvements in U.S. Market:
CEMEX's main markets during 2015, in terms of EBITDA, were
Mexico (39%), Central
and South America (23%), the U.S. (19%), Europe (9%), and Asia,
Middle East, and
Africa (18%) before others and intercompany eliminations.
CEMEX's U.S. EBITDA
was USD109 million in 1Q16, which represents a 71% increase from
1Q15.
KEY ASSUMPTIONS
--U.S. cement sales volumes increase mid-single digits in 2016;
--Mexico cement sales volumes increase low-single digits in
2016;
--Consolidated sales volume growth of low-single digits in 2016;

--Capital expenditures of approximately USD700 million in 2016;

--Additional asset sales of approximately USD0.7-1.5 billion
over the next 18
months.
RATING SENSITIVITIES
Negative: Future developments that may, individually or
collectively, lead to a
negative rating action include:
--Rating downgrades are not likely during 2016 as CEMEX's credit
protections
remain consistent with the category despite underperformance by
some key
business units. CEMEX received an unfavorable ruling by the
Spanish tax
authorities during 2014 that could result in a payment of EUR455
million. If the
company is unsuccessful in its appeal, this fine would hinder
its ability to
deleverage and could lead to a negative rating action if the
payment coincides
with sluggishness in other key markets.
--A loss of the positive momentum in the U.S. market would have
a material
impact upon the company's credit profile and could pressure
leverage to around
6.0x, which could result in a negative rating action.
Positive: Future developments that may, individually or
collectively, lead to a
positive rating action include:
--Net leverage at or less than 4.0x could lead to an upgrade of
both the IDR and
the company's notes to 'BB'.
--Fitch projects that CEMEX's EBITDA in its U.S. operations will
grow to USD650
million by 2016 from USD565 million in 2015. This projection
incorporates an
expectation that single-family and multi-family housing starts
in the U.S. will
total 1.2 million in 2016. Growth beyond this figure would be
positive for the
company's U.S. business and would accelerate its deleveraging
process.
--Cement demand in Mexico has underperformed Fitch's
expectations since 2014,
and this has offset improvements in operating cash flow in the
U.S. and in Asia.
EBITDA generated by CEMEX in Mexico declined approximately 3% to
USD966 million
in 2015 compared to USD999 million in 2014. Fitch currently
projects EBITDA in
this market to remain relatively flat in 2016. A turnaround in
the Mexican
market to EBITDA levels of around USD1 billion could also
accelerate debt
reduction.
LIQUIDITY
CEMEX has a manageable amortization schedule as a result of its
aggressive
refinancing efforts over the past few years. The company had
USD1.3 billion of
cash and marketable securities compared to zero short-term debt
as of March 31,
2016. Most of the company's marketable securities are held in
U.S. and Mexican
government bonds. Approximately 83% of CEMEX's debt is
denominated in USD and
16% in euros. CEMEX also had full availability under its USD735
million
committed revolving credit facility as of March 31, 2016.
Fitch currently rates CEMEX as follows:
CEMEX
--Foreign and Local Currency Long-Term IDRs 'BB-';
--Senior secured notes due 2018, 2019, 2021, 2022, 2023, 2025,
and 2026 'BB-';
--National scale long-term rating 'A-(mex)';
--Senior unsecured certificates due 2017 'A-(mex)';
--National scale short-term rating 'F2(mex)'.
Fitch currently rates the following guaranteed debt 'BB-':
CEMEX Materials LLC, a limited liability company incorporated in
the U.S.
--Senior Notes due 2025.
CEMEX Finance LLC, a limited liability company incorporated in
the U.S.
--Senior secured notes due 2021, 2022, and 2024.
C5 Capital (SPV) Limited, a British Virgin Island restricted
purpose company
--Senior secured perpetual notes.
C8 Capital (SPV) Limited, a British Virgin Island restricted
purpose company
--Senior secured perpetual notes.
C10 Capital (SPV) Limited, a British Virgin Island restricted
purpose company
--Senior secured perpetual notes.
C-10 EUR Capital (SPV) Limited, a British Virgin Island
restricted purpose company
--Senior secured perpetual notes.
SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTS
Leases: Fitch has adjusted the debt by adding 7x of yearly
operating lease
expense of $1.7 billion for 2015 and $419 million for 1Q16.
Contact:
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
Secondary Analyst
Gilberto Gonzalez, CFA
Associate Director
+1-312-606-2338
Committee Chairperson
Sergio Rodriguez Garza
Senior Director
+52-81-8399-9100
Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908
0526, Email:
elizabeth.fogerty@fitchratings.com.
Date of Relevant Rating Committee: July 27, 2015
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and
Parent and
Subsidiary Linkage (pub. 17 Aug 2015)
here
Additional Disclosures
Solicitation Status
here
Endorsement Policy
here
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